ICHIMOKU - The 'One Stop Shop' Trading Strategy Tool Explained!

Japanese Ichimoku charts are becoming ever more popular for today's trader and investor. Ichimoku in its own right is a fantastic analytical trading strategy tool. Often, the basics of Ichimoku are misinterpreted, and users struggle to deploy successfully this system in today's trading world. What is also not dealt with so well, is how you should be able to adapt, dissect, change and use the Ichimoku traditional approach more effectively to create even more powerful trading strategies and systems.

When I first came across Ichimoku back in the 1990's I thought it was a complete un-translatable mess of tools and indicators and couldn't possibly help you with your trading - how wrong was I!! I am going to quickly take you through the basics of Ichimoku in this article and give you some ideas how to implement it into your trading and investing! If you want to dig further I have a FREE and full course taking you from zero to hero on the subject on my YouTube channel: Please copy and paste this link into your browser if you want to check it out:

https://youtu.be/Rc01mT8mf64

So why Ichimoku Charts?

• Can give you a different angle/edge / excellent for creating strategies for your trading.
• Will improve your trading clarity, psychology, and discipline.
• Easily implemented into your current trading and investing.
• An interesting (mystical) part of technical analysis.
• Great for automation and systematization.
• A one-stop shop trading system for : Breakouts, Trend following, Reversals, Risk and Trade management

A quick look at Ichimoku:

So what is it?

• Ichimoku is a unique trading tool for analysing any asset in any timeframe. To the outside observer, at first glance it looks a complete mess.
• Untangle it though and you have a straightforward and very powerful all round trading system that can seriously boost your trading results. 

Ichimoku, otherwise known as Ichimoku Kinko Hyu, was developed by a Japanese journalist Goichi Hosoda and published in his book in 1969. It means ‘one look’.

It is a collection of technical analytical techniques to determine:

• The trend
• Momentum
• Support and resistance
• Trading signals
• Entry and exit points

It is made up of 5 indicators:

• Tenkan Sen (Conversion Line): (9-period high + 9-period low)/2))
• Kijun Sen (Base Line): (26-period high + 26-period low)/2))
• Senkou Span A (Conversion Line + Base Line)/2))
• Senkou Span B (52-period high + 52-period low)/2))
• Chikou span (Close plotted 26 days in the past)

NOTE: The Senkou’s create the ‘cloud’ aka Kumo

The inputs above are the original default settings. However, there is nothing to stop you changing and adapting a different set up. 

In terms of using the ‘language’ I like to keep it traditional, but most charting packages these days offer the key terminology translated into English!

We will build up our knowledge of Ichimoku using the S&P 500 stock index as our example…..

Example: Typical Ichimoku set up on S&P500 Index (Charts: TradingView)

ICHIMOKU RULES: THE CLOUD:

• Senkou Span A and B form the shaded area known as the cloud, or to give its official name, the Kumo.The cloud changes trend direction when these two lines cross. In the example, here for clarity, green signifies bullishness and red bearishness (standard defaults colours in most chart packages). 
• Again, there are no rules to say what colours you need to use. The cloud can be great for highlighting potential support and resistance levels.
• There are two ways to identify the overall trend using the Cloud.
• The trend is up when prices are above the Cloud, down when prices are below the Cloud and flat when prices are in the Cloud.
• The uptrend is stronger when the Leading Span A line is rising and above the Leading Span B line. This situation produces a Green Cloud. Vice versa: a downtrend is stronger when the Leading Span A line is falling and below the Leading Span B line. This situation produces a Red Cloud.
• The Cloud is also shifted forward 26 days, so as to provide a view on future support or resistance.

NB: For the purposes of this analysis: Green (Bullish) = the darker shaded part of the cloud. Red (Bearish) = the lighter shaded part of the cloud.

S&P 500 Index (Charts: TradingView) Ichimoku set up with only the Kumo (Cloud) displayed:

ICHIMOKU RULES: THE CONVERSION LINE & THE BASE LINE:

These are used to identify faster, and more frequent, signals. They are very similar to the Western moving average crossover system. Trading signals occur when the two cross:

• Conversion line > Base line = Bullish
• Conversion line < Base line = Bearish

Remember: bullish signals are potentially stronger when prices are above the cloud and the cloud is green. Bearish signals are potentially weaker when prices are below the cloud and the cloud is red.

S&P 500 Index (Charts: TradingView) Ichimoku set up with close up of conversion lines crossing

ICHIMOKU RULES: THE CHIKOU SPAN:

This can be used to pick out bearish and bullish signals. It is therefore perceived as a mirror of price action in a typical trading period. To use it, you must look for its position in relation to the position of the price action, traced back to 26 candles previously.

• If the Chikou span is above the price action, then this is a bullish signal.
• If it’s below the price action, then the sentiment in the market is bearish.
• If the Chikou is found where the candlesticks are, then this equates to possible consolidation.

Its primary uses are for confirming support and resistance and pin pointing breakouts through the cloud.

S&P 500 Index (Charts: TradingView) Ichimoku set up withChikou span displayed:

TAKING ICHIMOKU FURTHER:

This is the point where we combine the Ichimoku on to a Heikin Ashi chart to create a very powerful combination of tools that I like to call: Ichimoku Heikin Ashi (IMA),

Further on top of this you can add some Western indicators to enhance it further to create a powerful trading system.

Example: S&P500 Index (Charts: TradingView) set up withHeikinAshi chart with Stochastic and RSI indicators:

Conclusion:

Once the components to this system are understood, then it becomes quite apparent that this is indeed a very useful trading and risk management tool. 

Your options are endless with Ichimoku and this is what makes it a fascinating and exciting technical analysis tool. 

If you'd like to learn more about Ichimoku and how you can turn it into winning strategies, then dont forget my FREE course onYouTube course link (copy and paste into your browser): https://youtu.be/Rc01mT8mf64

What will you learn:

• Learn, why Ichimoku charts can be an extremely valuable tool for your trading.
• Learn how you can utilize Ichimoku charts in all markets and how they could be used in all styles of trading.
• Gain a complete working understanding of Ichimoku charts.
• Be able to enhance the basics of Ichimoku to create more powerful trading opportunities.
• Learn how to build and run your own Ichimoku trading strategies.
• How to utilize risk and money management processes into Ichimoku charts to make your trading safer.
• Use Ichimoku charts to filter out trading ‘noise’.
• Improve your trading discipline and psychology and make you a more robust trader.

COURSE CONTENT:

• 1.0 Introduction
• 2.0 ICHIMOKU BASICS
• 2.1 ICHIMOKU: THE PARTS - WHAT IS IT?
• 2.2 THE 5 PARTS IN DETAIL
• 2.3 HOW TO USE THE PARTS: THE CLOUD
• 2.4 HOW TO USE THE PARTS: OTHER INPUTS
• 2.5 BASIC ICHIMOKU TRADING RULES
• 2.6 ICHIMOKU FOR TRADE AND RISK MANAGEMENT
• 3.0 STRIPPING ICHIMOKU BARE
• 3.1 INTRO TO SECTION 3
• 3.2 THE PROBLEMS WITH ICHIMOKU
• 3.3 USING ICHIMOKU IN TODAYS TRADING WORLD
• 3.4 ADAPTING THE INPUTS / UTILISING THE PARTS
• 3.5 THE 1 STOP TRADING SHOP: BASIC STRATEGIES
• 4.0 NEW APPROACHES TO USING ICHIMOKU
• 4.1 INTRO TO SECTION 4
• 4.2 ICHIMOKU WITH HEIKIN ASHI CHARTS
• 4.3 ICHIMOKU WITH KAGI CHARTS
• 4.4 ICHIMOKU WITH LINE BREAK CHARTS
• 4.5 USING OTHER INDICATORS & STRATEGY EXAMPLES
• 5.0 ICHIMOKU COURSE ROUND UP
• 5.1 FURTHER SUPPORT & RESOURCES
• 5.2 COURSE ROUNDUP

If you’d like to find out more about what I do, you can get in touch with me via:

• Email: info@thestophunter.co.uk
• Website: www.thestophunter.co.uk
• YouTube: thestophunter

Visit my YouTube channel for loads of free educational content / courses / tips / analysis /ideas via my TIGER Intro post: THE STOP HUNTER (Links to YouTube at bottom of post)

Risk Warning: This course is purely for educational purposes and should not be construed as investment advice. Always be aware that trading and investment comes with a high degree of risk - always speak to your financial adviser first before investing and trading.